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to understand and respond by 4am on the 21st good thing i don t sleep much marcus sir first i think you are very good with graphs i looked at your examples and was almost convinced by them even before i understood what you were saying but i find i must put you in the third person in your his first link change the tune marcus quotes christina romer the finding that monetary developments were crucial to the recovery implies that self correction played little role in the growth of real output between 1933 and 1942 and responds this shows she s a true believer in the power of monetary policy i like that there is more both more from romer and more reaction from marcus i m quoting the parts i like self correcting is not the best phrase for the occasion it implies that the economy might change in ways that correct problems and oh yes i m sure it does but the things we think of as problems are not the same as the things the economy treats as problems mostly the things we think of as problems are the economy s responses to things that are problems for it things like an imbalance in the money an excess of credit use relative to the quantity of money in circulation which leads to stagnation and to inflation and to high unemployment for example and to large federal deficits evaluating romer s article and reactions to it marcus writes phillips curve arguments don t need to be evoked inflation can rise or fall with unemployment what transpires depends on the kind of shocks that are hitting the economy at the particular time and most importantly whether mp is geared explicitly or implicitly to stabilize nominal spending so i want to say marcus relies on shock theory i don t think adam smith did and i don t think keynes did and i don t either i still rely on supply and demand an oil shock ought to boost oil prices and oil profits and lead to an expansion of oil supply if it doesn t and if it doesn t lead to energy diversification then there are probably other problems at root besides shocks but that s just me so when marcus gets more into shocks fretting over the kind of shocks that are hitting the economy i just hear an empty argument marcus drives his train of thought from the phillips curve to a focus on gearing monetary policy mp to stabilize nominal spending i wouldn t do that i would start with his opening thoughts phillips curve arguments don t need to be evoked inflation can rise or fall with unemployment i would make sure you know that the term phillips curve implies a trade off between inflation and unemployment and i would make sure you know that when we say inflation can rise or fall with unemployment we are contradicting the implication of the phillips curve and i would say yes marcus is right events sometimes contradict the hundred years or more of empirical evidence supporting the implications of the phillips curve and i would say the single most important question to be asked is why in the same post marcus writes but only one thing anchors expectations and that is fed credibility he sees expectations as the cause of inflation and credibility as the dampener i m sure there s a lot of support for such ideas arisen in the last 40 years i m not impressed the last 40 years has been all bad show me adam smith focusing on expectations and credibility show me keynes focusing on expectations and credibility yeah keynes wrote of animal spirits but he said of expectations that people generally expect existing conditions to continue as a basis for macroeconomic theory expectations is thin marcus recommends his figures 1 and 2 from the post both figures show more or less that the difference between ngdp and rgdp comes out as inflation figure 1 considers the great inflation figure 2 considers the great moderation marcus concludes if the fed keeps nominal spending growth stable around a trend path inflation will most likely remain low and stable and rgdp growth will evolve close to potential sounds like magic to me what i don t get is what will drive the increase in real growth what prevents the increased quantity of money from generating nothing but inflation the only explanation i see so far is that we should try to mimic what happened during the great moderation and we should expect that inflation and rgdp will respond as they did during the great moderation but what s behind the curtain if marcus is telling me i don t see it yet in his second link the crisis from an ad perspective marcus wants us to look at figures 11 and 12 i was very quick with marcus s first link perhaps he has a really good explanation there and i missed it because i was rushing too much so let me take a different tack with his second link it s a good one to take some time with marcus writes this one sort of lays down my views on ngdp lt ngdp lt is nominal gdp level targeting somewhere in one of the posts he links he points out that level targeting is better than rate targeting because it follows a trend and if you go off trend the trend continues to remind you of where you ought to be and then policymakers should push to get back to the trend dunno about that the bullard s earthquake view is that the trend of potential output has suddenly fallen and there is now a new and much lower trend seems to me bullard would totally disagree with marcus and marcus with bullard but anyway marcus writes figure 11 shows the behavior of ad nominal expenditure growth in the us over the last 50 years it is relatively straightforward to associate this behavior to the periods that became known as the great inflation and the great moderation in the 1960 s and 1970 s the focal variable was the unemployment rate during the kennedy johnson administrations ad shocks from mp and fiscal policy fp parted a positive bias to ad growth in the 1970 s characterized by negative supply shocks notably oil prices increases in ad to compensate for the negative effects of the shocks on unemployment and rgdp growth resulted in high and rising inflation shock theory again y know what let me jump back to one of marcus s comments on mine of the 20th he quotes me i think other factors are involved in the rise of inflation and the decline of gdp and he responds if you are thinking that the first and second oil shocks are among those other factors involved think again the oil rise was a consequence of the previous rise in inflation oh yeah i know marcus is saying that there were inflation troubles before the oil shocks of the 1970s but if we jump back to the whitebox excerpt above marcus seems to say that inflation was a result of the policy response to oil shocks is there some contradiction here one more point from marcus s second and that s it for tonight i ll leave out the figures and just quote the text as indicated in figure 3 in mid 2006 house prices began to fall from this moment the delinquency rate began to grow affecting the health of important financial institutions a few new century financial for example went broke already at the beginning of 2007 notable however is the fact that between 2006 and mid 2008 ad growth was kept relatively stable and close to the trend path therefore in spite of the crisis the adjustments in the economy were able to proceed in an orderly fashion nother words when aggregate demand growth is kept fairly stable as under ngdp targeting the economy can weather severe financial troubles that s interesting not sure it s safe to generalize from one example but it s interesting okay it s almost midnight and my eyes are starting to cross marcus linked to another post but maybe i ll look at that one separately i m out posted by the arthurian at 4 00 am 1 comments friday april 20 2012 gimmick of the week ngdp targeting the interesting marcus nunes quotes krugman and what this says is that price stability isn t an adequate guideline for monetary policy you can have stable prices and a persistently depressed economy then he juggles the meaning of price stability then he forces his conclusion if the fed has the power to provide a specific definition of price stability it can also establish an alternative nominal target that the fed would pursue in order to provide nominal stability which is the most it can accomplish anyway the pay off is that nominal stability will most likely translate into real stability of both real growth and employment just like during the great moderation probably the best such target would be an ngdp level target nominal stability will most likely translate into real stability says who nunes hey i think he s interesting but i don t think he s psychic ngdp targeting is a plan to assure that gdp increases at a constant rate by providing as much inflation as necessary to achieve that goal remember the krugman quote that nunes started with well if you can have stable prices and a persistently depressed economy then you can have inflating prices and a persistently depressed economy heck we ve had that now for as long as anyone can remember you have to have lived in the 1950s and 1960s to have experienced a good economy there is no guarantee that deliberately inflating gdp will translate into real growth there is no assurance other than marcus nunes prediction it looks to me like inflation started out low in the 1960s when real growth was high but during the great inflation of 1965 1980 real growth trended slightly downhill and inflation climbed a lot and then after 1982 when inflation started coming down real growth went up again graph 1 real gdp growth blue and the rate of inflation red 1960 1990 just how it looks to me for the record i do not think my graph here makes a particularly strong argument i think other factors are involved in the rise of inflation and the decline of gdp however a graph always makes a better argument than does unsupported prediction mine is weak there are other factors involved factors which contribute to both the decline of growth and the upward pressure on prices of course if such factors exist and ngdp targeting ignores them ngdp targeting cannot succeed maybe mine is not so weak after all posted by the arthurian at 4 00 am 6 comments thursday april 19 2012 there must be a better way following up on my 5 am post this graph from the economist as the key shows green represents the lowest levels of debt which countries are in green brazil russia india and china all four are doing well and three of the four are among the world s fastest growing economies according to this map from indexmundi in a world that relies on credit for growth the best growth is achieved when debt is not yet excessive so that debt may grow rapidly and eventually become excessive there must be a better way posted by the arthurian at 6 19 am 0 comments core concept validated again china from alwaysland the core concept of arthurian economics is that the cost of interest the factor cost of money to put it in terms adam smith might use today consumes so much out of wages and profits that our economy just doesn t work any more from ouch yuck gasp thud after world war ii the federal debt was large compared to private debt private debt was small and did not interfere with growth so the economy grew and over the next 40 years private sector debt grew until the cost of it started to interfere with growth since then economic growth has not been good except briefly in the late 1990s from another piece of the puzzle regarding the 1990s so we have a decline in credit use and an increase in the quantity of money and after 3 or 4 years of that we get a golden decade coincidence not in my book from a comment we have to change the policies that cause us to use credit for money most important we need policies that accelerate the repayment of debt after that everything else falls into place the fed can be less restrictive without creating inflation because the repayment of debt is an anti inflation policy from red shift here is what i know to be true the quantity of money reached a peak in 1946 and has been falling since the volume of debt pyramided on money hit bottom in 1947 and has been rising since got the picture not enough money and too much debt is the kiss of death if you want to prevent money from creating problems in your economy you have to have enough money and not a lot of debt now here s the situation in the u s and china the numbers are from the cia world factbook taken 14 april 2012 as tabulated in my 3am post google docs spreadsheet available posted by the arthurian at 5 00 am 0 comments private debt 2012 16 why do you think that why do you think it is the federal debt that hinders economic growth that s just silly it is private debt that hinders private sector growth a new use of credit creates an addition to spending and a boost to the economy but the equal and opposite effect is the drag on the economy resulting from the debt that was created by that use of credit it isn t magic we don t get something for nothing we get something when we borrow but in exchange we create debt a drag on the economy so if we go for 60 years borrowing more and more the debt just accumulates the drag from that debt accumulates too slowly but surely becoming an insurmountable obstacle to economic growth people say taxes are high and still the government has deficits so government spending must be excessive i disagree taxes are high and the government has deficits and small government as a rule is better than big government sure but there are other economic forces at play and other economic factors to consider taxes must be higher in china than they are here don t you think and the government must certainly be a bigger part of their overall economy but china has been growing like crazy for a long time and we have not there are other economic forces at play and other economic factors to consider other than federal spending and federal debt china has less private debt posted by the arthurian at 4 00 am 0 comments from your friends at cia economy china united states gdp purchasing power parity 11 29 trillion 2011 est 15 04 trillion 2011 est gdp official exchange rate 6 989 trillion 15 06 trillion 2011 est gdp real growth rate 9 2 2011 1 5 2011 est labor force 816 2 million 153 4 million unemployment rate 6 5 2011 est 9 1 2011 est budget revenues 1 646 trillion revenues 2 264 trillion budget expenditures 1 729 trillion 2011 est expenditures 3 604 trillion taxes and other revenues 23 6 of gdp 2011 est 15 of gdp budget surplus or deficit 1 2 of gdp 2011 est 8 9 of gdp 2011 est public debt 43 5 of gdp 2011 69 4 of gdp 2011 est inflation rate consumer prices 5 4 2011 est 3 2011 est stock of narrow money 4 599 trillion 31 december 2011 est 1 943 trillion 31 december 2011 est stock of broad money 13 52 trillion 31 december 2011 est 12 14 trillion 31 december 2010 est stock of domestic credit 10 72 trillion 31 december 2011 est 32 61 trillion 31 december 2009 est from the cia world factbook of course they provide two versions of gdp and don t tell me which one to use i looked up p...
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